The Federal Government has moved to calm fears within Nigeria's aviation sector, asserting that newly enacted tax laws are designed to support airlines rather than increase their financial burden. This clarification comes as a direct response to recent warnings from Air Peace Chairman and CEO, Allen Onyema, who predicted that the provisions could push domestic airfares beyond one million naira.
Tax Reforms Aimed at Relief, Not Burden
In a detailed statement, the Presidential Fiscal Policy and Tax Reforms Committee acknowledged the severe financial pressures facing domestic carriers, which are often exacerbated by multiple taxes, levies, and regulatory charges. The committee firmly stated that the new tax framework is part of the solution to these historic challenges, not the source of further problems. It emphasized that the government has been actively engaging with airline operators and stakeholders throughout the reform process.
The committee highlighted several key changes specifically crafted to alleviate operational costs. A major breakthrough is the removal of the 10% withholding tax on aircraft leases that existed under the old regime. This tax was non-recoverable and significantly increased capital expenditure for airlines. Under the new law, the rate will be set by regulation, potentially allowing for a full exemption or a substantially reduced charge.
Path to VAT Neutrality and Corporate Tax Reduction
Another critical reform addresses Value Added Tax (VAT). The committee explained that while the temporary VAT suspension during the COVID-19 pandemic seemed beneficial, it inadvertently prevented airlines from reclaiming VAT on numerous essential inputs. The new system establishes a fully VAT-neutral environment for airlines. This means carriers can now claim back the VAT they pay on assets, consumables, and services. Furthermore, any excess VAT credits will be refundable within 30 days or can be offset against other tax obligations.
On the issue of import duties, the committee assured that existing exemptions on aircraft, engines, and spare parts remain firmly in place, with no new import-related taxes introduced. Regarding corporate taxes, the new laws provide a clear pathway to reduce the corporate income tax rate for companies from 30% to 25%. They also consolidate several profit-based levies into a single development levy to simplify the tax landscape.
Minimal Impact on Ticket Prices Assured
Responding directly to concerns about higher fares for passengers, the committee provided analysis on the 7.5% VAT applicable to tickets. It argued that within a system where input VAT is recoverable, the net impact on final ticket prices would be minimal. The committee assured that even in a worst-case scenario, any increase would not exceed the VAT rate itself.
The statement also addressed the persistent issue of multiple charges imposed by various government agencies, clarifying that these levies predate the new tax laws and were not created by them. However, the committee expressed optimism that broader tax harmonisation measures set to take effect from 2026 would improve this situation.
In conclusion, the Presidential Fiscal Policy and Tax Reforms Committee positioned the new laws as a strong legal framework to tackle long-standing sectoral challenges, ultimately aiming to lower operating costs for airlines and limit the financial impact on the flying public. This stance sets the stage for continued dialogue between the government and airline operators, who have consistently called for a reduction in the overall tax burden to make air travel more affordable.
